Yelp opts to scale back its deal service

ONLINE COUPONS

Douglas MacMillan, Bloomberg News

Published 3:49 pm, Monday, August 29, 2011

Photo: Richard Vogel, AP

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FILE - In this March 17, 2010 file photo, the Yelp Web site is shown on a computer screen in Los Angeles. Yelp now letting visitors see those that are automatically filtered out by software meant to catch content that isn't trustworthy. (AP Photo/Richard Vogel, File)
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FILE - In this March 17, 2010 file photo, the Yelp Web site is shown on a computer screen in Los Angeles. Yelp now letting visitors see those that are automatically filtered out by software meant to catch ... more

Photo: Richard Vogel, AP

Yelp opts to scale back its deal service

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-- Yelp is scaling back its year-old deal service that competes with coupon sites such as Groupon, citing concern that consumers are being overwhelmed with offers.

Sales staff dedicated to Yelp Deals will be cut in half beginning next month, Vince Sollitto, vice president of corporate communications, said. About 15 salespeople will be reassigned to other areas of the business, and the number of deals e-mailed to users is unlikely to grow.

"Rather than offer more and more deals of inherently declining quality to more and more folks over time, we want to make sure we're only providing good, quality opportunities," Sollitto said. "While we think the deals business is a good one, it has never been a core focus of our offering."

Yelp's retreat follows Facebook's decision last week to shut down Facebook Deals after four months. In July, 38 daily-deal sites closed - more than the 36 that opened - while the industry experienced a 7 percent drop in revenue from the prior month in top North American markets, according to researcher Yipit. Groupon and LivingSocial are the top two deal sites, which offer discounts on restaurants, hotels, events, and other goods and services.

Facebook may have withdrawn from digital coupons because competition to sell deals has grown so intense, said Greg Sterling, an analyst at Opus Research Inc. in San Francisco.

"There's just too much competition out there," Sterling said. "That manifests in too many e-mails in the inbox and too many salespeople calling merchants. There's so much noise in the market that it's hard for merchants and consumers to make sense of it all."

The increased offerings may also be putting pressure on margins and hurting the ability of companies like Yelp to profit from coupons, said Jeremiah Owyang, an analyst at Altimeter Group in San Mateo.

"While Groupon had first-mover advantage, many competitors followed suit, driving down prices and commoditizing the market," Owyang said.

Yelp, which posts local business reviews, began offering discounts from local merchants in San Diego in August 2010 and expanded to 20 cities this year. In June, it incorporated the service into its mobile applications for Apple's iPhone and Google's Android software.

The San Francisco based startup plans to double its sales staff to 700 in the next 18 months, including a new office in New York and the expansion of a Scottsdale, Ariz., site it opened in 2010. All salespeople are able to sell Yelp Deals, and vendors can sign up for the service on Yelp's website, Sollitto said.

Merchants say one deal often leads to unsolicited calls from other coupon sites. After Kiebpoli Calnek ran a Yelp Deal advertising 50 percent off an aerial performance class in July, she began receiving calls from representatives of Groupon, LivingSocial and other deal sites every day.

"They send me e-mails, they call me, they call me again," said Calnek, who is based in Brooklyn, N.Y. "I told them I'm burnt out from this deal, I have 500 new clients, why would I want to do another one?"

Founded in 2004, Yelp has raised more than $130 million in funding from Elevation Partners LP and other backers. Last month, the company hired a new chief financial officer, Rob Krolik, citing his experience at public companies.

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